Contingency Planning for Entrepreneurs: The Death of a Founder

The Shock

It was a freak accident. He was alone. He couldn’t get to a phone to call for help in time. That’s how my client died. Well, technically, my client is the company, but my friend was its CEO.

He had a will. He had built in institutional redundancy, but the company, his clients, his friends and family were all shocked. For some surprises, there is just no contingency plan. We met, we mourned, we buried him. Now we must move on. For his friends and family, moving on has its own meaning.

Moving on for the Business

For the business, “moving on” is a detailed process of responding to his absence:

· Amending the LLC Agreement, reflecting the revised membership composition;

· Appointing new officers and realigning duties;

· Filing new bank signature cards;

· Revising the notice provisions in the many company contracts that directed notices to his attention;

· Reaching out to customers, vendors, and business relationships to introduce new roles and make sure that everyone is “read in” on projects that are in-process;

· Contacting life insurance carriers and arranging death benefit payments;

· Reviewing life insurance policies for new role players;

· Contacting accountants and attorneys to deal with buy/sell provisions and partial year returns and K-1s;

· Monitoring e-mail and regular mail, looking through notes and calendars to make sure that as few things as possible are missed; and

· Handling the myriad other clean-up items, too numerous to mention, that will only become obvious when discovered.

Having a Plan

In this case, the business will experience a comparatively brief interruption before carrying on, albeit on a slightly different course. For many entrepreneurial businesses, however, the unexpected unavailability of a founder or CEO can be devastating. I encourage all of my clients to work with me, their CPA, their banker, and their insurance carriers to have a plan in place in case of just such an unexpected event, and to revisit that plan annually.

Having a plan to follow greatly improves the survivors’ ability to preserve the value of the enterprise. The process of making the plan can improve the value of the enterprise, as well, as owners often identify opportunities for savings or process improvement.

If you need help making or revising a plan, even just getting started, we are here and happy to help.